The former head of enforcement for the U.S. Securities and Exchange Commission today defended settlements that allow financial institutions to forego admissions of wrongdoing, saying they permit quicker resolution of cases and put money back in investors pockets.
Robert Khuzami, who spent four years as enforcement director, defended the commission's long-standing "no admit, no deny" practice. Any person reading a newspaper article about a big SEC settlement, he said, would not walk away with the notion the company making the deal did nothing wrong. Khuzami described what he called the "whole package" of enforcement actions.
"I didn’t think there was much doubt in most cases that a defendant engaged in wrongdoing when you had a 20-page complaint, you had them writing a big check, you may well have prosecuted an individual in the wrongdoing," Khuzami said while addressing the state of securities enforcement during The National Law Journal Regulatory Summit in Washington.
Khuzami, who joined Kirkland & Ellis this year as a partner in the firm's government and internal investigations practice, didn't make a resounding endorsement of the SEC's new position that companies, in certain instances, now will be required to admit wrongdoing. The move, he said, raises a myriad of questions and could pose significant challenges.
In June, Mary Jo White, the new SEC chairwoman, said enforcers "are going to in certain cases be seeking admissions going forward." White said that, "to some degree, it can turn on how much harm has been done to investors, how egregious is the fraud."
White's view, Khuzami said, is that the shift would aid accountability. "I don’t disagree with that," he said, responding to a question from NLJ reporter Jenna Greene. The big challenge, Khuzami continued, will be whether the policy shift will translate into more trials—putting a crunch on the securities agency's resources.
Khuzami questioned how the agency will decide which companies must admit wrongdoing and which are given a pass. Companies are often reluctant to admit wrongdoing for fear of, among other things, opening a door to criminal prosecution, increased exposure to liability in class actions and potential loss of business.
"Who will make these admissions?" Khuzami asked. "It will be interesting to see how it plays out over time."
The securities commission's "no admit, no deny" practice drew fire in 2011 from U.S. District Judge Jed Rakoff in New York, who refused to approve a $285 million deal between Citigroup and the SEC.
"An allegation that is neither admitted nor denied is simply that, an allegation," Rakoff wrote at the time. "How can it ever be reasonable to impose substantial relief on the basis of mere allegations?"
Despite White's announcement this summer, "no admit, no deny" still has life. The commission announced such deals in 22 cases that resulted in more than $14 million in sanctions.
Andrew Ceresney, co-director of the SEC's enforcement division, said in September that the settlements send "the clear message that firms must pay the price for violations while also conserving agency resources."